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CCI disagrees with Amarchand, AZB’s early Aditya Birla-Pantaloon merger control filing

CCI: Do not pass Go (yet)
CCI: Do not pass Go (yet)
Exclusive: The Competition Commission of India (CCI) rejected an amalgamation notice filed by Amarchand Mangaldas for Aditya Birla Nuvo, and AZB & Partners for retailer Pantaloon on 14 August. According to the regulator’s interpretation, the notice was premature and not in accordance with the Combination Regulations.

Amarchand Mangaldas Mumbai competition partner Nisha Kaur Uberoi and corporate partner Nivedita Rao acted for Aditya Birla Nuvo which had proposed to acquire Pantaloon Retail India’s format business Future Value Fashion Retail (FVFRL) by a demerger and the subsequent merger of that company with Aditya Birla Group’s subsidiary Peter England.

Peter England had also agreed to buy 13.15 per cent equity in Pantaloon Retail India for Rs 800 crore ($144m), under a subscription and investor rights scheme.

AZB & Partners Delhi competition partner Samir Gandhi and Mumbai corporate partner Shuva Mandal acted for Pantaloon.

The notice was filed with the CCI on 16 July, after a memorandum of understanding (MoU) was entered into on 14 June between Aditya Birla Group, its subsidiary Aditya Birla Nuvo, and Pantaloon’s parent company Future Corporate Resources and its units including FVFRL.

The CCI stated, however, that the board of directors of the MoU’s signatories had neither approved the proposed demerger and merger, nor the subscription and investor rights scheme. It also stated that the signatories had not even decided upon the terms of the proposed transactions, including the scope of assets to be acquired and the share entitlement ratio.

The CCI asked Amarchand Mangaldas and AZB to “remove defect(s) and provide certain information and document(s)” on 20 July.

On 6 August the firms submitted before the CCI that the signatories were in the “process of finalising” the terms of the transaction, including share entitlement ratio, valuation reports, fairness opinion, the scheme itself, the implementation agreement, and “other ancillary documents”. The board’s approval also remained to be obtained.

On 13 August the firms submitted a letter to the CCI asserting that their notice of 16 July was proper: “The parties treated the execution of the binding MoU and the Subscription and Investor Rights Agreement as the first trigger for the notification to the Commission and accordingly a composite notice was filed with the Commission.”

They reasoned that the basis of treating the MoU and the agreement as the first trigger was that the proposed transaction involved a series of inter-connected steps or individual transactions proposed to be undertaken pursuant to the MoU.

The firms also asked for time until 29 August to file the information and documents required by the CCI in its 20 July letter.

The commission again disagreed that the MoU could trigger notification requirements since it was only a temporary arrangement which would terminate if the scheme did not get the board of directors’ approval and was subject to other conditions, as reported by moneycontrol and others.

The CCI later clarified on 22 August, after Pantaloon’s share price dropped by 3 per cent in reaction to the news, that it had only rejected the merger on technical grounds and not in its merits, reported Mint.

Describing the procedural requirements around the now-compulsory merger control notification as dilatory, a law firm not involved in the case commented in a client alert email:

In the Pantaloons case, the signing of the MOU and the Subscription and Investor Rights Agreement was sufficient to show the bona fide intention of the Parties to enter into the proposed transaction and the CCI could have started its process of investigation without having to wait for the approval from BoD of the Parties.

Such delays on the basis of technical grounds act as detriment to free functioning of business and enterprise since substantial time and costs are incurred due to lengthening of the transaction timelines.

The firm referenced European, UK and US merger control provisions, which merely required bona fide intention of the parties to conclude the transaction, and that the notification should be made before the transaction is concluded.

“Perhaps voluntary notification will be brought back into the Act when Indian legislators are satisfied that Indian business and enterprise is mature enough to be ‘governed’ and not ‘regulated’,” said the firm.

Lawyers at Amarchand and AZB declined to comment.

Photo by Mark Strozier

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